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How Getting Approved for Car Loans Works When You Have Bad Credit

August 16, 2018

 

 

Auto finance to buy a new car is generally seen as being harder for people with bad credit history, but that’s not necessarily the case. If you find the right lender, but making sure you can make the monthly payments on time, the chances of getting a car loan with bad credit to get back on the road is pretty easy and in just a few payments you will have improved your credit rating. However, while it is often easy, the process of obtaining bad credit auto loan financing is a bit different than what many people with stellar credit tend to go through. Learn more about how this works so you can stay empowered and informed through each step of the financing process, even with poor credit or low credit ratings. Auto loans for bad credit are not as bad as they first seem. Read on to find out more.

 

How Credit Relates to Automotive Financing

 

So, what is the big deal about credit and a car loan with bad credit, anyway? In a finance context, the word “credit” refers to a few things, but for our purposes in this article, “credit” means “credit-worthiness.” A consumer’s creditworthiness is a judgement criterion that lenders use to determine trustworthiness with borrowed money. Credit-worthiness is determined based on several factors in a consumer’s financial history, including the length of your credit history (i.e., how old your oldest credit card is), the amount of debt you have in relation to the amount of credit available to you through cards and loans, your history of making payments on time, and big things like bankruptcy.

 

So, if you have only had a credit card for a year and you’ve “maxed out” and missed some payments, your credit history reflects a low level of creditworthiness in the eyes of a lender and the chances of getting a loan for people with bad credit is lower. People in circumstances like this are likely to have credit scores under 600, which is generally considered “bad” by most lenders. Each lender is different, though. In some cases, anyone with a score under 750 or so may be treated with suspicion when asking for a loan.

 

When you have a score that falls below the 600–650 range, some big lenders won’t even look at your application. They usually don’t take the time to consider how responsible you are with your money or how much money you make every month. It could be that the credit card you took out a year ago and ran up the balance on was your only way of getting from where you lived during university to the city you moved to for your first job, which pays you quite well. All they see is that credit score number and that’s not really fair, is it?

 

Finding the Right Lender

 

As unfair as the credit system can be, it makes good sense from the lender’s point of view. But some lenders know that creditworthiness isn’t just a matter of assigning points and scores. Life is complicated; sometimes it puts us through some tough times that force us to make painful decisions. Sometimes we make mistakes. Everyone experiences this in some way at some point in their lives and it shouldn’t keep you from being able to buy a car. If you ended up with bad credit due to a painful period of financial hardship, unemployment, or divorce it can seem especially unfair that the worst parts of our lives are used to judge us. Lenders that specifically cater to customers with less-than-perfect credit know how much it can hurt to go through this.

 

This means that car shoppers with imperfect credit histories and credit scores below 600 may want to sidestep the traditional lending process altogether. Choosing to work with a lender that understands what it’s like to have a bad credit score can make a huge difference. We know that bad things happen to good people and that your credit score is not an all-powerful grade that determines your entire character. It’s just one piece of information a lender can use to determine whether you’ll be able to pay your loan back or not.

 

Getting rejected for a loan can feel like a major slap in the face. So, while it can be tempting to try your luck with a traditional lender if your credit history isn’t spotless, you are highly unlikely to get anywhere with a big bank or a manufacturer’s financing department. It’s a waste of time to try. These giant financial institutions take a highly impersonal approach. If your credit score doesn’t line up with their minimums, they toss out your application. And each time a financial institution pulls your credit history, it actually counts against your credit score. So it’s best to stick with a lender that is openly welcoming to people with credit histories like yours.

 

Looking at the Lender’s Approval Criteria

 

Making sure your financial partner is willing to work with less-than-perfect credit is a good first step, but there are still some important things to consider. First, be wary of any lender or financial partner that claims to be able to give financing to every single applicant regardless of credit history. Not only is this a suspicious claim, it’s also a mistake that follows the same flawed logic that the big lenders use to turn people away. There’s no one size fits all solution to financing. Everyone’s credit history is different. Everyone’s life circumstances are different. Credit only tells part of the story, but the rest of the story is important too.

 

This means that you want to make sure you know what other factors are taken into consideration when the lender reviews your application. What information do you need to provide when you apply? If you don’t need to provide any information beyond proof of age and basics like that, you should be suspicious. But if you’re asked to provide details relating to your employment history, current income and other details about your financial life—that’s a good sign.

 

These details provide a more accurate, fair picture of who you are. People with credit challenges aren’t usually bad people who are trying to deal with lenders in bad faith. Life gets in the way sometimes and that’s just the way it goes. But if you’re picking up the pieces and putting your life back together after hardships made your credit take a nosedive, you can still prove your trustworthiness. You just need to make sure that lenders are going to see this. Making sure the financial partner you choose wants to talk to you and learn more about you outside of your credit score is a smart step toward getting the financing you need.

 

Understanding Loan Terms

 

Once you turn in your application and talk to your lender to provide more information about yourself, you should prepare to review your finance options. If you’re unfamiliar with automotive financing, you should talk to the customer service reps. We’ll help you understand what to expect and give you the information you need to feel empowered and aware of what’s going on through each step. One of the most important steps is actually reading the loan or lease agreement and understanding the terms of your contract with the lender.

 

Terms for a bad credit loan may be different than those for a standard loan, but that’s

 not necessarily a bad thing. Often, the terms are designed to provide some extra protection for the lender, but they can also make it easier for you to actually make your payments. Making on-time payments on a loan will do wonders for your credit so this is a great opportunity for you to address two issues head on. You get a new car and a second chance at proving your creditworthiness.

 

Your Personal Responsibilities Before and After Finalizing the Deal

 

You’ll have some personal responsibilities to attend to throughout the process. It doesn’t feel good to be lectured about your finances. We understand that. People with bad credit often get frustrated by what seems like a flood of scolding and advice. At the same time, it’s helpful to have some non-judgemental guidance that you can choose to either ignore or incorporate into your approach. You can make your own decision on whether this advice is worthwhile or not.

 

Firstly, the opportunity the loan itself presents is a good one. In order to get the most out of this chance to rebuild your credit, you need to make sure you’re actually able to repay the loan. Set your monthly budget expectations in a modest place, ideally aiming for something that you can comfortably afford without having to cut out any essentials. Understandably, not everyone can manage this, but, if possible, you’ll want to choose a car that’s below your means. In other words, choose a budget that you can afford easily, not one that will cause you anxiety every month when the bill arrives. This way, you’ll be able to pay on time, every time, keep your car and get your credit back up in the “good” range.

 

Additionally, the loan terms should be favorable for you and should line up with your budget. It can be such a big relief to know that you were approved for financing that it’s tempting to say “yes” no matter what kind of offer you get. Plus, you probably need a car and don’t have much time to wait. But remember that it’s important to be aware of what you’re agreeing to before you sign a contract and lock yourself into financing. It’s important not only to set your budget in a realistic place but to make sure the financing you get is as favorable for you as it possibly can be.

Canada Credit Financial's blog is a free resource for credit challenge customers who have the desire to improve their lives by acquiring the knowledge required to increase their credit score. Our team understands that even good people are often forced to go through tough times. A divorce, a loss of income, an illness, or other similar circumstances out of your control might have put a toll on your credit history and your financial life. We want to help by giving you access to quality content that will provide you with the know-how, the tools, and the strategies to get back on your feet and enjoy the freedom of a healthy credit score.

 

Our writers specialise in automotive financing. To our knowledge, the purchase of the right vehicle, at the right price, financed from the right lender, at the right interest rate provides one of the fastest and most robust ways to rebuild your credit history. It’s impossible to erase bad credit, but rebuilding a solid and diligent payment history through a vehicle financing is a great way to separate yourself from your past credit bumps to enjoy a better future.
You can also use the information to protect your current credit, avoid pitfalls, and educate your children so they are prepared to enter the world equipped with the knowledge that will give them an edge and will allow them to fulfil all their dreams.


Credit is a great tool if used properly. At Canada Credit Financials, we want you to control your credit; we don’t want credit to control you.

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Learn EVERYTHING you need to know BEFORE you apply for a car loan to make sure you get APPROVED!!!
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*In order to qualify for a loan you will be subject to the following minimum credit requirements for final approval: You must be 18 years of age or older, have a valid drivers license, with a job that pays at least $2,000 a month before taxes and have one pay stub to prove it. An equity investment might be required. You will certify that all the information you provide on your application will be true and correct. We assume no responsibility for incorrect information provided by the various credit reporting agencies. Any bankruptcy must be discharged before the funding transaction can take place. If you meet all the criteria provided above you could be provided with a pre-approval for up to $39,000 depending on vehicle chosen, at an interest rate to be decided by the lender on approved credit. See dealer for additional details. All dealer promotions and incentives are strictly the responsibility of the dealer and are not in any way connected to the marketing offers from Canada Credit Financial.